Symbotic Inc. Q1 FY2025 earnings call

• Scaling for growth: Built out team to support growth and deployments, with progress in deployment execution and focus on project execution and schedule. - Investing in innovation: Hired new CTO James Kuffner, who is working on exciting initiatives including new simulation tools, bolstered by acquisition of Omni Labs. - Acquisition of Walmart's Advanced systems: Closed the transformative acquisition, beginning integration efforts with a development phase including prototype building, with Walmart committed to deploying technology in 400 stores over multiyear period representing over $5 billion of future backlog if key performance criteria met. - Software performance: Software revenue more than doubled, software margins over 65% in the quarter, and software maintenance and support gross margin improved sequentially.

In the first quarter, revenue grew 35% year-over-year to $487 million. Backlog of committed contracted orders remained at $22.4 billion. Software revenue more than doubled year-over-year, with software margins over 65% in the quarter. System gross margin improved sequentially. Operations Services posted a negative gross profit as they invested in resources for customer success, but this impact was expected to moderate. Software maintenance and support gross margin also improved sequentially.

• For the second quarter of fiscal 2025, expect revenue of $510 million to $530 million and adjusted EBITDA between $26 million and $30 million, reflecting at least 30% year-over-year revenue growth and sequential increase in overall gross margins, while accommodating sequential increase in operating expenses associated with recent acquisitions. - Guidance reflects only modest contribution from acquisition of Walmart Advanced Systems and Robotics business due to partial quarter and early days of development program, with potential deferral of some revenue to store deployment period.

• Tariffs: Contractually, able to pass along tariffs, but impact on margins could vary. - Labor price inflation: Significant portion of buildup is supply based, but monitoring and working with suppliers to buffer, with portion of work being Symbotic labor and EPC monitored. - Material weaknesses in audits: Deficiency remediation controls implemented, including compensating controls over good receipt and revenue recording, with testing results encouraging but taking several sequential quarters to fully remediate.

Q: Talk about the magnitude of OpEx increase expected in 2Q and splitting SG&A and R&D?

A: Carol Hibbard said OpEx expected to increase about $5 million to $10 million, primarily driven by long-term business investments and acquisitions, with moderation expected going forward between R&D and SG&A Q: Dig into operation services loss in the quarter?

A: Carol Hibbard said operation services had negative gross profit as they supported sites with additional resources for customer success, expecting impact to moderate near term but focus on reliability and support for customers to have long-term benefits Q: Update on insourcing process and new system starts?

A: Carol Hibbard said in-sourcing of EPC work is progressing, with first systems where Symbotic performs EPC work expected in next quarter or so; four new system starts this quarter not unexpected, with number expected to continue increasing throughout the year as they build out backlog Q: Indication of customer budget discussions and tariffs pass-through?

A: Rick Cohen said seen more interest in spending as investments in site operations bear fruit, with tariffs typically pass-throughs in contracts; Carol Hibbard said contract type varies by project, with some elements negotiated as pass-throughs Q: Update on controls for year-end audit issues and new system timelines?

A: Carol Hibbard said deficiency remediation controls deployed, with testing results encouraging but taking several quarters to remediate; Rick Cohen said acquisitions were small, with integration of Walmart robotics expected to go smoothly Q: Lead times and backlog contract mix?

A: Carol Hibbard said lead times tightened post-COVID with no significant changes recently; Carol Hibbard said contract type varies by project, with tariffs typically pass-throughs and some costs in control of Symbotic affecting gross margin if not performed to Q: Labor price inflation management and AI innovation?

A: Carol Hibbard said working with suppliers on long-term agreements to buffer labor price inflation; Rick Cohen said focusing on Teletiops of bots, using AI for bots to learn and improve reliability, leveraging cloud for faster transactions and simulations Q: GreenBox update and cash flow from operations?

A: Rick Cohen said GreenBox in build-out with management team hires upcoming, revenue ramp up later this year; Carol Hibbard said 1Q cash flow from operations highly benefited by timing of receipts, with cash position expected to rise throughout the year Q: Software subscriptions and support variability, and adjacent growth opportunities?

A: Carol Hibbard said software revenue quarter-over-quarter growth due to onetime benefit in 4Q, normalizing shows sequential increase; Rick Cohen said envisioning growth in perishable warehouses, returns automation, and other adjacent areas like back store systems Q: Cost overruns update and non-Walmart customer revenue?

A: Carol Hibbard said systems gross margin slightly improved, expecting mix improvement in back half of year as lower margin projects go live; Rick Cohen said non-Walmart customers showing interest in various verticals like manufacturers, back store systems, and medical supplies Q: Break pack systems deployment and mix change explanation?

A: Rick Cohen said second break pack being deployed with redesigned mini bot, increasing margin; Carol Hibbard said mix change due to burning off long-standing lower margin projects Q: Gross margin expansion and AI competitiveness?

A: Carol Hibbard said not expecting systems gross margin to break 20% in first half of year; Rick Cohen said Symbotic very far ahead in AI due to large amount of data and unique architecture Q: Walmart APD acquisition impact and new salespeople?

A: Carol Hibbard said second quarter has modest revenue from acquisition, with growth expected backloaded; Rick Cohen said ramping up GreenBox sales team and hiring additional salespeople for different verticals Q: Guidance related to 10-K backlog and non-grocery customer discussions?

A: Carol Hibbard said remaining performance obligation upped to 11% in 10-Q, indicating back half loaded revenue growth; Rick Cohen said non-grocery customers in discussions across various verticals Q: Walmart Robotics acquisition work direction and international conversations?

A: Rick Cohen said Walmart robotics solution will combine Symbotic's hardware and software, with significant international opportunity in Mexico, Central and South America